Secret havens, secret policy: The scandal of EIB loans to companies based in tax havens

Key EU-funded development projects in the Global South are being carried out by companies registered in tax havens and financial off-shore centres, potentially costing developing countries tens of millions in tax revenues and leading to corruption, capital flight and lack of transparency and accountability, the NGO coalition Counter Balance [1] reveals today.

Counter Balance is thus launching an awareness-raising campaign on the use and abuse of tax havens. On May 25th, cartoons questioning the EIB policy on fighting tax avoidance and the off-shore financial industry will appear in 4 newspapers in the 4 major EIB shareholders countries: the UK, France, Italy and Germany (each country holds a 16% share of the decision making power at the EU house bank).


The main sponsors of many of the largest and most contentious mining, energy and dam projects supported by the EU through its house bank, the European Investment Bank (EIB), appear to operate through vehicles registered in well-known tax havens. Notable among these are:

•    WAPCo. incorporated in Bermuda, sponsor of the West African Gas Pipeline from Nigeria to Ghana, financed by the EIB in the amount of EUR 75 million in December 2006.

•    Tenke Holding Ltd/Lundin Holding, registered in Bermuda, part-owners of the Tenke Fungurume copper/cobalt mining project in the Democratic Republic of Congo, for which the EIB agreed a preliminary commitment up to EUR 100 million in August 2007

•    Mopani Copper Mines plc is majority owned by Carlisa Investments Corporation, incorporated in the British Virgin Islands, that is the sponsor of the Mopani Copper Project in Zambia, loaned EUR 48 million by the EIB in February 2005.

•    Bujagali Energy Limited (BEL), sponsor of the Bujagali Hydroelectric Dam project in Uganda, for which the EIB extended a USD 136 million loan in December 2007. According to an EIB press release of 07.01.2008, “BEL is owned by Industrial Promotion Services (Kenya) an investment company of the Aga Khan group, and by Bujagali Holdings Ltd., a special purpose affiliate of the US based power plant developer Sithe Global Power, LLC, majority owned by Blackstone SGP Capital Partners (Cayman) IV L.P., an affiliate of The Blackstone Group.”

Tax havens have attained particular notoriety during the financial crisis, where they have been intimately involved in securitisation issues and an estimated USD 1,000 billion leaving developing countries in capital flight.

Counter Balance recently wrote to EIB President Maystadt asking for clarification on the due diligence undertaken by the EIB regarding the impacts of major project sponsors being registered in tax havens [2]. However, it received what it regards as a deeply disappointing response that largely hides behind the EIB’s public non-disclosure policy, under which the bank has refused to publish the results of its due diligence on the grounds of “protection of privacy and the integrity of the individual” [3].

Desislava Stoyanova, Counter Balance co-ordinator, said: “This “secrecy policy” prevents civil society from accessing key information about what is done in its name under the rubric of development.”


The EIB’s support for companies registered in tax havens also stands in sharp contrast to the widespread political support among European and American leaders to take concrete steps towards fighting tax avoidance.

 Counter Balance therefore proposes that the EIB tables a proposal to ECOFIN at the upcoming EIB AGM in Luxembourg on 9th June 2009 to exclude from EIB support all corporations/investors and banks/financial intermediaries directly based or operating through offshore financial centres, whether in the context of operations financed by the EIB or through their general business.

Desislava Stoyanova, Counter Balance co-ordinator, said: “Dominique Strauss Kahn, head of the IMF, German Chancellor Angela Merkel, French President Nicolas Sarkozy and UK Prime Minister Gordon Brown have all recently called for a clampdown on tax havens. US President Barack Obama said those who use them ‘shirk their obligations of citizenship.’ Yet the EIB appears to be actively promoting the use of tax havens by global mega-corporations—and giving them EU taxpayers’ money earmarked for development to do it! This is a shameful abdication of responsibility by an out of touch bank and it will not stand.”


NOTES FOR EDITORS

1. The Counter Balance campaign is lead by a European coalition of development and environmental non-governmental organisations, formed specifically to challenge the European Investment Bank. Our mission is to make the EIB an open and progressive institution delivering on EU development goals and promoting sustainable development to empower people affected by its work. http://www.counterbalance-eib.org

2. On 23rd March, 2009, the Counter Balance coalition together with Eurodad and the Tax Justice Network sent a letter to President Maystadt underpinning our concerns regarding EIB due diligence in the process of distributing the EU loans to multinationals based in Off-Shores Centres and Tax havens. letter to President Maystadt on March 23rd, 2009
“We seek clarification on whether the EIB is planning to improve the policy to match the expectations and goals recently outlined by major European leaders and EIB shareholders. As well as this general query on policies we have specific questions on certain specific EIB operations approved in recent years, projects that have been co-financed by the EIB.

We would therefore like to request detailed information on:
1. What specific due diligence did the EIB perform on these projects and their sponsors’
apparent use of – and reliance on – tax havens?
2. Was any such due diligence carried out by EIB staff, or by consultants?
3. What were the results of any due diligence exercises carried out by the EIB?
4. Will you publish your due diligence results?”

3. EIB response of April 21 2009:

1) According to procedures in place at the Bank, all these projects have been subject to an enhanced control on behalf of the relevant services to ensure that EIB funds channelled through the project's borrowers are not used for prohibited practices.

2) This due diligence has been carried out by EIB staff, in certain cases also relying on information provided by other lenders.

3) & 4) The Bank will not publish the due diligence results on the basis of Articles 25, 26, and 34 of the Banks Public Disclosure (http://www.eib.org/about/publications/public-disclosure-policy.htm ) regarding protection of privacy and the integrity of individual, in particular in accordance with EU legislation regarding the protection of personal data, and of the Bank s internal decision-making process.”

Feel free to download our cartoon in the following languages:  English, Italian, French and German, in high resolution, copyright free to post/publish in your media.

Tags: financial off-shore centres, tax havens, eib